Some experts worry about the allure of prediction markets for younger Canadians, who are already immersed in sports betting and anxious about their financial futures.Moor Studio/iStockPhoto / Getty Images
Prediction markets are making their way into Canada’s financial mainstream, raising concerns among some advisors who worry the products blur the line between investing and gambling.
The debate has intensified following Wealthsimple Inc.’s partnership with Kalshi, a U.S.-regulated prediction market that allows users to trade on the outcomes of real-world events, from elections and interest-rate decisions to sports and economic data.
In Canada, platforms have received regulatory approval to offer contracts tied to economic indicators, financial markets and climate trends, but not to sports or elections.
While supporters argue prediction markets are sophisticated forecasting tools, critics compare the platforms to gambling that could encourage speculative behaviour among younger investors already accustomed to sports betting and meme-stock trading.
“I think what Canadian regulators are trying to do is really just dip our toes into these markets. Internationally, it’s big business,” says Li Zhang, director of social impact and financial literacy leader with CPA Canada.
In the U.S., she says, prediction markets are “almost like an offshoot of sports betting,” while platforms operating in Canada will be more limited.
Ms. Zhang says the allure of prediction markets may be particularly prevalent for younger Canadians anxious about their financial futures.
There’s also growing evidence that advertising can influence betting behaviour, particularly among younger adults. According to research from CPA Canada, 27 per cent of Canadians who participate in online gambling or sports betting say advertisements have influenced them to place a bet. That figure rises to 37 per cent among 18- to 34-year-olds.
“When you look at folks in that age range, these are the people who are already suffering from affordability issues,” Ms. Zhang says, as well as anxiety about artificial intelligence disrupting careers.
Introducing prediction markets, she says, means adding another “easy way to lose your money.”
Public skepticism toward prediction markets remains high, with research from the Angus Reid Institute conducted in early May showing that 41 per cent believe the markets shouldn’t be allowed.
The survey also showed that fewer than one in 20 Canadians have ever placed a prediction market bet and interest in doing so remains very low among the general public.
In an Ipsos survey for CIBC Investor’s Edge conducted in April, almost three-quarters of participants said prediction markets are more like gambling than investing, and more than half said they shouldn’t be available on investment platforms.
For Harp Sandhu, senior wealth advisor and portfolio manager with Sandhu Wealth at Raymond James Ltd. in Victoria, prediction markets are straight-up gambling masquerading as investing.
“It’s the binary outcome of a zero-sum game. If you’re right, you make money; if you’re wrong, you don’t,” he says. “You have to be willing to take that same amount of money to the casino and throw it on 13 black.”
Prediction markets differ significantly from traditional investing, he says, because participants can lose everything if they’re wrong. By contrast, traditional investments such as stocks may decline temporarily after unexpected economic events, but investors still retain ownership of the asset and may continue to collect dividends while waiting for it to recover over time.
“I say to clients, ‘What if we build a resilient portfolio that’s going to perform beautifully over time, no matter what the central bank decides one Tuesday morning?’” says Mr. Sandhu, referring to prediction markets for central bank decisions.
Kelly Ho, partner at DLD Financial Group Ltd. in Vancouver, says she approaches prediction markets the same way she discusses speculative investments such as cryptocurrency or high-profile initial public offerings with clients, advising them to invest only money they can afford to lose.
“From a suitability standpoint, it’s absolutely top-of-the-scale high risk,” Ms. Ho says. “I tell my clients, ‘It’s your money. I can’t stand in your way. But if I were you, I wouldn’t bet more than you can lose.’”
Advisors also need clients to be transparent about speculative activity taking place outside the client portfolios they manage, Ms. Ho says.
“If they lose big and have to liquidate their stuff, it affects the rest of their financial picture,” she says.